The United States Court of Appeals for the Second Circuit recently changed the tune of a decades-old insurance coverage dispute when it decided to apportion liability exposure for multiple instances of environmental contamination on an “all sums” basis.
In the matter of Olin v. OneBeacon, Olin, a manufacturing company, sought indemnity for remediation costs and other sums related to pollution cleanup at five of its manufacturing sites under several excess general liability policies. OneBeacon insured Olin under three excess umbrella insurance policies, each of which contained “prior insurance” and “non-cumulation” provisions. The court determined that in light of these provisions, liability should be apportioned on an “all sums” basis, and ruled that the insurer’s liability exposure should be reduced by the sum of the payments made under any prior, same-level excess policies issued to the insured by different insurers. As a result of the court adopting an “all sums” allocation approach, OneBeacon was entitled to a set-off of more than $2 million for its liability for the entirety of its insured’s cleanup costs.
In reaching its decision, the court relied on In re Viking Pump Inc., 52 N.E.3d 1144 (N.Y. 2016), which stands for the proposition that for policies containing “prior insurance” or “non-cumulation” clauses, an “all sums” allocation with vertical exhaustion is the only appropriate method for allocating losses among policies. The court’s holding in Viking Pump marked a significant departure from the “legal fiction” that property damage can be cleanly allocated between policy years, and instead adopts a joint and several liability theory that allows the insured to seek indemnification for the full amount of damage incurred over the continuing damage period as well as contribution from other insurers.
Olin affirms New York’s “all sums” approach to allocating risk between same-level policies insuring a mutual risk when those policies include “prior insurance” or “non-cumulation” provisions. Allocation among multiple polices can be a complicated affair, but consistency in the courts’ approach on apportioning liability should help to simplify the process. For cases involving several layers of coverage for long-tail exposure across multiple sites Olin provides a thorough roadmap for how to make an “all sums” allocation.